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Entrepreneur Parole: the “Startup Visa” Solution

On January 17, 2017, the U.S. Department of Homeland Security (DHS) published a final rule in the Federal Register to “implement the Secretary of Homeland Security’s discretionary parole authority in order to increase and enhance entrepreneurship, innovation, and job creation in the United States.” The effective date of the “International Entrepreneur Rule” is July 17, 2017.

The final rule changes the proposed rule, which was published on August 26, 2016, and formalizes efforts to create a “start-up visa” as available work visa options most commonly used by entrepreneurs pose significant drawbacks. Still, entrepreneur parole has limitations, as it is not a visa status, but it allows certain individuals to pursue qualifying business endeavors in the United States.

Entrepreneur Parole

Parole is not an “admission” in nonimmigrant or immigrant visa status, but rather temporary permission to live and/or work in the United States. Congressional action would be required to create a new nonimmigrant visa for entrepreneurs. Under existing law, DHS is given the discretionary authority to grant parole on a case by-case basis for “significant public benefit.” The term “significant public benefit” is undefined, but is generally used for aliens who enter to take part in legal proceedings. The ability to interpret “significant public benefit” at its discretion has allowed DHS to implement regulations to facilitate entrepreneurship that would provide a significant public benefit by increasing business growth in the United States.

The final rule is expected to encourage start-ups with the potential for high growth to pursue research and development, create job opportunities for U.S. workers, and increase business activity, innovation, and dynamism to benefit the U.S. economy. Additionally, the parole requirements are expected to form a transparent framework by which DHS will exercise its discretion on a case-by-case basis.

How to Qualify

U.S. Citizenship and Immigration Services (USCIS) will accept immigration form I-941 and a $1,200 government filing fee, along with documentation supporting the required criteria as discussed below. Applicants would be able to apply from within the United States or abroad, and would be required to appear for a biometrics appointment adding a fee of $85 to the cost. Spouses and children would file dependent applications using form I-131 and paying the $575 and $85 biometrics fees. Approval of the first initial period of stay may be granted for up to 30 months (2.5 years) and will be based on the following criteria:

Formation of a new start-up entity. Qualifying entities must have been lawfully doing business in the United States and have been created within the five years immediately preceding the date of filing.

Entrepreneur. The applicant must be an entrepreneur who will advance the entity’s business by:

possessing at least a 10 percent ownership interest in the entity at the time of the adjudication of the initial grant of parole; and

having an active role in the operation and future growth of the entity, such that his or her knowledge, skills, or experience would substantially assist the entity in conducting and growing its business in the United States. A mere investor is not eligible.

Investment. The applicant must show, through reliable supporting evidence, the entity’s substantial potential for rapid growth, which may be demonstrated through:

investment from established U.S. investors—i.e., the receipt of significant investment capital (at least $250,000) from certain qualified U.S. investors (such as venture capital firms, angel investors, or start-up accelerators) with records of successful investments and histories of substantial investment in successful start-up entities; or

government grants—i.e., the receipt of funds from federal, state, or local government entities totaling at least $100,000; or

partially satisfying one or both of the above criteria in addition to other reliable and compelling evidence of the start-up entity’s substantial potential for rapid growth and job creation.

The evidence required to satisfy the criteria listed above will be reviewed and favorable discretion exercised on applications where “the applicant’s parole would provide a significant public benefit, and the applicant merits a grant of parole as a matter of discretion.” Recipients of such parole will be authorized for employment “incident to status,” meaning that a separate application for work authorization will not be needed for the qualifying start-up. The entrepreneur’s passport and I-94 record indicating entrepreneur parole will be acceptable evidence for employment eligibility verification (Form I-9) purposes. Temporary employment authorization will be provided during the application for re-parole. Parolee spouses may apply for employment authorization by filing form I-765. Parole may be revoked if the entity ceases operations or DHS determines parole no longer provides significant public benefit.

Extension/Re-Parole

Extensions (re-parole) may be granted for up to 30 months (2.5 years) only if it is demonstrated that the entities have shown significant growth since the initial grant of parole and continue to have the potential for rapid growth and job creation.

Sustaining the start-up entity. The qualifying entity must have been lawfully operating in the United States and continue to have substantial potential for rapid growth and job creation.

Investment. The applicant must show through reliable supporting evidence, the entity’s continued potential for rapid growth, which may be demonstrated through:

investment or grants—i.e, the receipt of investment from U.S. investors with records of successful investments, or grants from U.S. government entities, or a combination of both investments and grants, of at least $500,000 of additional funding during the initial parole period; or

revenue generation—i.e., the entity reached $500,000 in annual revenue with average annualized revenue growth of at least 20 percent during the initial parole period; or

job creation—i.e., the entity created at least five full-time jobs during the initial parole period; or

alternative criteria—i.e., partially satisfying one or more of the above criteria in addition to other reliable and compelling evidence of the start-up entity’s substantial potential for rapid growth and job creation.

If re-paroled, the applicant’s maximum period of granted parole will be five years.

Key Changes to the Proposed Rule

The final rule is similar to the proposed rule with a few key changes:

The minimum initial investment amount was reduced from $345,000 to $250,000.

The minimum ownership interest was reduced from 15 percent initially to 10 percent and, at re-parole, from 10 percent to 5 percent.

Investment may include securities that are convertible into equity issued by an entity that are commonly used in financing transactions within the entity’s industry.

Qualified investors no longer are required to make investments in at least three separate calendar years within a five-year period totaling at least $1 million. The final rule removed the “three separate calendar years” requirement and reduced the $1 million minimum to $600,000. The final rule maintains the requirement that subsequent to the investment, at least two of the entities each created at least five qualified jobs or generated at least $500,000 in revenue with average annualized revenue growth of at least 20 percent.

The “recent creation of the start-up entity” period was changed from within the past three years to within the past five years immediately preceding the filing of the application.

The number of jobs created within the initial period of parole was reduced from 10 to 5 to qualify for re-parole.

DHS clarified that qualifying revenue must be generated in the United States.

Periods of parole and re-parole are 30 months each rather than 2 years and 3 years.

Material changes which must be reported to DHS include a “significant change with respect to ownership and control of the start-up entity.”

Ownership interest may be reduced during the initial period of parole, but not below 5 percent.

Limitations

Entrepreneurs may pursue nonimmigrant (e.g., O-1, L-1, and H-1B visas) and immigrant status (e.g., EB-1, EB-2, EB-3 visas) while in parole. However, because parole is not considered an admission, those individuals will need to process their applications at consulates outside of the United States rather than adjusting to permanent resident status or changing status in-country.

Applicants are required to maintain a household income of at least 400 percent of the federal poverty line. This threshold is intended to ensure that applicants continue to make “significant economic and related contributions to the United States.”

Only three entrepreneurs per start-up entity will be able to qualify and each applicant must meet the criteria individually.

Conclusion

The “start-up visa” concept is not new and was formally proposed by former senators John Kerry and Richard Lugar in 2010. DHS’s entrepreneur parole is a solution with limitations, but it allows qualified investors and foreign entrepreneurs to develop business enterprises which have significant public benefit in the United States. Ogletree Deakins will continue to follow and report on developments related to entrepreneur parole and the International Entrepreneur Rule..

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